What version of geometry are you using? Find out by adding \listfiles before \documentclass{article}. This compiles without problem on TeX Live 2009 on ScribTeX (with geometry 2010/03/13 v5.3).
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WernerSep 1 '11 at 20:53

thanks a lot, it was older version, now I updated it to v5.6
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Prabhanjan NaibSep 1 '11 at 21:25

1 Answer
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Comparing the obsolete geometry v4.2 manual with the manual of the current version 5.6, it seems that the layout package option was introduced in version 5 (which was a major upgrade). Update your TeX distribution in order to get the current version of geometry, and everything should be fine. (I compiled your example, and it worked without problem.)